In Money (1878), Francis Walker discusses his concept of money. He identifies what he considers the basic functions of money: a medium of exchange (it facilitates exchanges), a common denominator (this function should not be confused with money as a measure of value), and a standard for deferred payments (it is a standard of value for paying debt). Walker rejects two functions of money that most economists hold: money as a measure of value and money as a store of value. At least before the demise of money’s connection to gold in 1971, most economists disagree with Walker on these two functions.

Measure of Value

Under the gold standard, when an economist claims that gold is a measure of value, he means that the value of goods and services are compared with the value of a specific weight and fineness of gold. This comparison results in the price of the good or service. For example, between 1837 and 1934, the US dollar was defined as 23.22 grains of fine (pure) gold or 25.80 grains of standard gold, which was 90 percent pure. Thus, a theater ticket that cost $10 had the same value as 232.2 grains of gold.

According to Walker, when most economists are describing money as a measure of value, they are really describing it as a common denominator. Although some use the two terms interchangeably, they are really two different things. Moreover, “they have no necessary relation to each other.”

Walker defines the value of money the way that adherents of inconvertible paper money define the value of money. That is, the value of a gold coin is the value of what it can purchase. According to Walker, the value of a gold coin is determined by its use as a medium of exchange and is independent of its gold content. (Presumably, if the gold content of a gold coin were doubled or halved, its purchasing power would not change. Even Walker and the opponents of gold know that this is absurd.) To most adherents of the gold standard, the value of a gold coin is the value of the material of which it is made, although some of them argued against this notion by claiming that the quantity of gold coins was the primary determinant of their value. Others, such as George Weston, argue that the value of the gold coin determines the value of its metal content, and the value of the gold coin is determined by the supply of metallic and paper money. To illustrate the difference between the two, today, the value of the dollar is the value of a dollar’s worth of goods. Between 1837 and 1934, the value of a dollar was the value of 23.22 grains of gold. The latter definition is superior to the former because it defines the value of the dollar independently of itself. The former defines the value of the dollar in terms of itself.

Walker argues that when values are measured, they may be expressed relatively to each other as a scale of numbers. Perceiving money as providing a scale of value instead of a measure of value, was not original with Walker. Dugald Stewart had earlier argued this notion. Like Stewart, Walker seems to believe that gold is the best form or type of money. Yet, if his argument that money does not measure value, but merely provides a scale for relative values is correct, then the material of which the money is made is irrelevant. Like Stewart, Walker does not consider money as capital but as an aid in enumeration and arithmetic. Many economists, especially today, and even in the nineteenth century, concur with Walker and Stewart. Thus, for example, if item A has a value of 1 and item B, of 5, then item B is worth 5 times more than A.

He notes that advocates of Ideal Money, which is inconvertible paper money, maintain that money merely provides a common denominator by which the relative values of various goods can be compared. Advocates of Real Money, which is full-weight metallic coin either gold or silver, maintain that money provides a common measure of value to which various goods are compared and measured. (Ironically, while supporting the adherents of Ideal Money on money being merely a numeric that compares but measures nothing, he abhors inconvertible paper money.)

Instead of money measuring value, Walker argues that money merely provides a common denominator. If money is merely a numeric, as today’s money essentially is, although it does measure value, albeit poorly, what purpose do such apparent units of measure as the dollar, pound, franc, mark, or peso, serve? Walker does not say. If money merely provides a common denominator, then the coin or paper note would only need a number stamped on it. Adding “dollar,” “pound,” “franc,” “mark,” or “peso” is superfluous and can be confusing (misleading one to believe that value is being measured). Why make a $10 gold coin twice the size of a $5 gold coin and a $20 gold coin twice the size of a $10 gold coin, if the coin does not measure value? Why not just use paper money with numbers and no units printed on them? Yet Walker abhors inconvertible paper money.

Following the lead of Prof. Rogers, Walker compares measuring value to measuring distances. If the distance between A and B is 1 and the distance between B and C is 10, then the distance between B and C is ten times greater than the distance between A and B. However, one does not know if the distance is in zeptometers (an extremely short distance) or in zettameters (an extremely long distance). Without a unit of measure, one does not know whether the distances are short or long. Moreover, a unit of measure is needed to ensure that the relative values are understood correctly. Thus, the distance between A and B compared with B and C is much greater than it appears if the distance between A and B is in zeptometers and B and C is in zettameters. Instead of the relative distance between B and C being ten times greater than A and B, it is 10 to the 43rd power greater (a enormous number). (Another example of the inadequacy of relative comparisons occurs with corporate profits. Corporation X has a 100 percent increase in profit compared with the previous year, while corporation Y has only a 1 percent increase in profit. In relative terms, corporation X appears to have a greater profit. However, when absolute profits are considered, a different story is revealed. Corporation X had a profit of $1 the previous year and $2 this year; thus, it had an increase in profit of 100 percent. Corporation Y had a profit of $1 billion last year and $1.01 this year, which is an increase in profit of 1 percent. Of the two which did the best?)

When comparing values, a measure of value, that is a unit of value, is also needed. For example, the US dollar had a value of 23.22 grains of gold and the British pound had a value of 113 grains of gold. Thus, the value of the British pound was about 4.86 times greater than the value of the US dollar. One needs to know whether prices are being compared in dollars or pounds or both. The relative values may be the same, but the absolute values may not be. For example, if item X costs £2 and item Y costs £1, then item X costs twice as much as item Y. If item A costs $2 and item B costs $1, then item A costs twice as much as item B. Although both X and A have twice the value of Y and B respectively, X is worth 4.86 times A and 9.72 times B. Thus, more than a common denominator is needed to estimate value or even to measure relative differences. A unit of measure, i.e., a unit of value, is also needed. Furthermore, that unit of value must have value in and of itself.

As shown above, when distance or value is being compared, more than a numeric value is needed. Moreover, that unit of measure must possess what is being measured.

Walker does admit that to measure value, a value must be used. Nevertheless, that value can be relative and expressed as a pure number without reference to any common value. He states, “Value is a relation. Relations may be expressed, but not measured.” He illustrates this with distance by claiming that the relationship between a furlong and a mile cannot be measured but can only be expressed as 8 to 1. (By definition, a mile equals eight furlongs. However, as discussed above, if no units of measure are attached to the relative numbers, one has no clue about the distances being expressed.)

Furthermore, Walker uses seigniorage as an argument that money does not measure value. Because of seigniorage, the monetary value stamped on the coin exceeds the value of its metal content. This is true. Seigniorage may cause the coin to be overvalued domestically, but not necessarily so. If the seigniorage is too high, coins will exchange based on the value of their metal content and not based on the monetary value stamped on them — even if such exchanges are illegal. Nevertheless, the seigniorage premium disappears once the coin leaves the country of issue. Outside the country of issue, its purchasing power is that of its metal content and not that which is stamped on it.

Unlike Walker, most economists argue that to measure and compare values of various items, these items have to be compared with a common item, which under the gold standard is a specific weight and fineness of gold. Moreover, this standard to which items are compared has to have value in and of itself, which is often called “intrinsic value.” Walker argues that money cannot measure value because unlike the yardstick or meterstick, its value is not fixed, even for a gold coin. (Even the definition of the meter has changed several times since it was first invented. Therefore, the measure of distance has changed over time, although minutely.) It varies with time, place, and circumstances. This is true. Being subjective, value is not constant — not even for money regardless of the material of which it is made. Moreover, relative values vary with time, place, and circumstances. Yet nothing cannot measure something as Walker seems to argue. If it could, unitless numbers on paper could serve as money as well as full-weight gold coin. Moreover, paper money would be much cheaper to manufacture. However, Walker presents a convincing argument that inconvertible paper money is vastly inferior to gold coin. (Nevertheless, he uses inconvertible paper money to argue against the notion that money can measure value and has to have value in and of itself to do so.)

Store of Value

Most economists who support the gold standard assert that one of the important functions of money is to serve as a store of value. Some even claim that this is the most important function of money.

Contrary to the assertion of these economists, Walker argues that money does not serve as a store of value. About this function of money, or more correctly, lack of it, he agrees with the proponents of inconvertible paper money.

The store of value is closely related to the measure of value. If money does not and cannot measure value, it need not store value. However, if money is the measure of value, then it needs to be able to store value so that it can measure value. That is, money has to have value in and of itself to measure value. Value can only be measured against value and with value.

Walker identifies money serving as the standard for deferred payments as an important function of money; that is, money serves as the payment for debt. Why would anyone give up something of value, whatever is lent, in exchange for payments of no value? To function as payment for debt, money has to be able to transfer value through time and often through space. Even inconvertible paper money transfers value through time to a highly limited degree.

Furthermore, money functioning as a medium of exchange implies that money is a store of value. It must store value so that it can carry value from its receipt to its expenditure so that little or no value is lost. Also, why would anyone sell his goods or labor in exchange for that which has no value? Evidently, Walker believes that people are willing to make such exchanges. Contrary to Walker’s belief, money’s function as a medium of exchange cannot be separated from its function as a store of value. This is true not only for full-weight metallic coin but also for inconvertible paper money. (Generally, losing value over time at various rates, inconvertible paper money stores value poorly and becomes a poor medium of exchange.)

Moreover, Walker states, “When a commodity comes to serve as a store of value, it ceases to be money.” Gold in hoards, treasures, plate, and ornamentation is not money. (At the other extreme is Murray Rothbard, who claims that gold is money whatever its form.) Walker is unclear whether gold coins held in reserves by banks for payment of their notes and checkable deposits are money. Based on his argument, bank reserves should not be considered money.

On the other hand, being a good economist, he asserts that gold’s ability to be used as a store of value is an important attribute that qualifies it as money. Is this not confusing? Gold stores value, but once it is coined and used to buy something or pay a debt, it ceases to store value. However, if the recipient puts the coin in his pocket and does not spend it for a year, i.e., hoards it, it ceases being money and becomes a store of value. (This is akin to the gold-is-sterile argument against the gold standard.)

To add to the confusion of gold being either money or ornamentation, i.e., a store of value, Walker describes the use of gold as jewelry, such as ring-money worn as rings or necklaces, being used as money. Presumably, when the owner was wearing the ring-money on his finger, it was a store of value, but not money. However, when he took the ring off and bought an item with it, the gold ring ceased storing value and became money. (How long does a gold coin have to remain in one’s purse before it ceases being money and becomes a store of value? Walker does not say.)

In summary, Walker argues that money does not measure value; it merely serves a common denominator by which the values of various goods and services are compared. Furthermore, money does not and cannot store value, although the material of which it is made can often store value. On these two points, most economists who support the gold standard disagree. However, most economists who support inconvertible paper money agree with Walker.